Treasury-Power and Budget Execution in Fragile States: Liquidity, Authority, and the Political Economy of Reform Failure

Budget reforms repeatedly fail in fragile states despite the widespread adoption of fiscal rules, program budgeting, and public financial management (PFM) reforms. This article argues that such failure stems from a systematic mislocation of budgetary authority in existing analytical frameworks. The article develops a theory of treasury power, defined as the institutional capacity to control the timing and prioritisation of payments under liquidity constraints. It shows that uncertainty over public resources transforms the budget constraint into a sequential and intra-annual liquidity constraint, weakening the binding character of ex ante allocations and shifting effective decision-making to the execution stage. Building on this mechanism, the article explains reform failure as an endogenous institutional equilibrium. Reforms that seek to reduce discretion by strengthening rules or procedures undermine the treasury’s adjustment function and are therefore systematically neutralised during execution. This interpretation is consistent with observed patterns of payment delays, arrears accumulation, and expenditure prioritisation in fragile contexts. The article contributes by relocating budgetary authority from allocation to execution, formalising the role of liquidity in budgetary decision-making, and providing a political economy explanation for persistent reform failure.